Rule #1 in trading is to NEVER EVER ignore your losing trades.
And by NEVER EVER we mean NEVER. EVER.
It’s these losing trades you can learn the most from.
Let’s go through the different ways to learn from them together.
To get started, I am gonna need you to look up your past trade transactions. Specifically, take a look at your profits and your losses.
First, we are going to calculate your Average Gain.
Average Gain = Total Gain / Number of winning trades
Next, we are going to calculate your Total Loss.
Average Loss = Total Loss / Number of lost trades
Once we have calculated both, the average gain and the average loss, let’s display is as a ratio.
Profit / Loss Ratio = Average Gain / Average Loss
For instance, if you had 20 winning trades, bagging yourself an average of $300 per trade and 10 losing trades, losing $400 per trade on average, this is how you’d go about it to calculate it.
Profit / Loss Ratio = $300 / $400
Profit / Loss Ratio = 0.75
This then means that your average profit is 75% your average loss.
Fortunately, you won 20 trades out of 30.
Your winning percentage was 75%.
Win % = Number of Profitable trades / Total number of trades
Win % = 20 / 10
Win % = 0.75 or 75%
The average win compared to the average loss also tells you how well you’re managing and closing your positions.
To learn from your mistakes, you need to pay super close attention to your losses.
It is about how you manage and control your losses that can make or break you as a Forex trader.
So my question to you is, have you ever found yourself in a drawdown?
Now would be the right time to sit back and reflect on how you acted. This way, you will be able to identify the bad habits in your trading approach and eventually step back from them.
Chances are, you will grow as a Forex trader!
Expectancy in Forex is the average amount you expect to win or lose per trade based on your previous performance.
Expectancy = (% Winning trades x Average gain) - (% Losing trades x Average Loss)
For instance, let’s say 40% of your trades in the past two months were profitable and you won $400 per trade on average, while 60% of your trades were unprofitable with an average loss per trade of $200. This is how you would calculate it.
(40% x $400) – (60% x $200)
($160) – ($120)
Expectancy = $40
Pretty simple, right?
And believe it or not, your trading performance does depend on your expectancy.
Don’t underestimate it.
Going back and reflecting on your performance regularly can help you better understand your wins and your loses.
It might not be the most interesting exercise, but it does work.
And who knows, maybe in time you can turn your loses into profits!
Track your progress, take quizzes and receive your trader certificates.